$A spikes half a cent as RBA holds on inflation, outlook

Well, one leg of our 24-hour trifecta has already collapsed, with Green Moon triumphant at the Melbourne Cup.

But was that more or less exciting than the RBA keeping interest rates on hold at 3.25 per cent?

Ooh, tough call. Very tough call.

But at least we got the RBA call right, and given that’s supposed to be my job (i.e. not picking horses) maybe it means I live to fight another day.

From the RBA’s statement accompanying the monetary policy decision, it would appear the Board is now a little bit concerned about inflation. Furthermore, some of the recent global economic gloom that had been a worry when the Bank cut in October seems to have lifted a bit.

“At today’s meeting, with prices data slightly higher than expected and recent information on the world economy slightly more positive, the Board judged that the stance of monetary policy was appropriate for the time being."

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Further to the global outlook appearing a bit better, the RBA noted “recent data from China suggest growth there has stabilised."

Consider also that as the expected peak in resource investment arrives approaches next year, the RBA “will be monitoring the strength of other components of demand".

As such, we should expect the health of the non-resources side of the domestic economy will become a key focal point for the RBA in coming months. When the RBA cut rates in October, in reference to the peak approaching, it said “it will be important that the forecast strengthening in some other components of demand starts to occur".

Taking the two months’ comments in aggregate, if the non-resources sector of the domestic economy doesn’t fire or pick up the slack, it will mean the RBA will probably have to ease monetary policy to support those sectors.

At the moment, the acknowledge there are “tentative signs" previous easing have started to have some of the “expected effects", though they will still take time to work their way through. This could see the RBA hold for a little bit longer than might have previously been expected.

Could they even hold in December?

The Australian dollar liked the no-rate-cut outcome a lot, leaping half a cent immediately following the release. The currency was fetching around $US1.0367 before the decision and had climbed as high as $US1.0435 in the 15 minutes after. The dollar was fetching $US1.0422 in afternoon trade.

Government bonds have taken a big hit. The benchmark 10-year bond swung from gains to losses as the yield rose 1.8 basis points to 3.172 per cent. The yield on the 3-year jumped 7.4 basis points to 2.693 per cent.

Shares continued to generally ease in the wake of the RBA, with the S&P/ASX 200 up 8.38 points, or 0.19 per cent, at 4482.5.